This week, Republican Gov. Tim Pawlenty’s agriculture commissioner, Gene Hugoson, and his Iowa counterpart, Bill Northey (Democrat), are asking that federal funds be used to buy pork, and then direct it to federal food programs, according to the Associated Press.

What’s the problem? Swine flu has scared people from pork, even though it has nothing to do with the meat, and the name has since been changed to the H1N1 flu. The recession also has people eating less meat.

Republican opposition to federal spending and intervention in private business tends to soften when things turn tough for farmers — a traditional Republican constituency. But is there a difference between an autoworker and a hog farmer? On scale, there’s a big difference. But what about philosophy?

Consider Gov. Pawlenty’s view of the government intervening in the banking and auto industries. “It’s headed in the wrong direction in terms of government micromanaging or intervening, and, worse yet, funding and subsidizing and taking over entire parts of our economy,” he said earlier this month.

When should the market prevail? And when should the government step in?

About the blogger

Bob Collins has been with Minnesota Public Radio since 1992, emigrating to Minnesota from Massachusetts. He was senior editor of news in the ’90s, ran MPR’s political unit, created the MPR News regional website, invented the popular Select A Candidate, started the two most popular blogs in the history of MPR and every day laments that his Minnesota Fantasy Legislature project never caught on.

NewsCut is a blog featuring observations about the news. It provides a forum for an online discussion and debate about events that might not typically make the front page. NewsCut posts are not news stories but reflections , observations, and debate.

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The government is already in farming, big time. That might be right or wrong, but it is different than cars.

We could stop producing cars for years without adverse impact outside the auto sector.

You can’t do that with food.

Bob Collins

Why doesn’t market economics work with food production?

GregS

Market conditions work well within certain bounds with food production. If you follow the markets, they swing up and down, driven by things as esoteric as weather reports in Brazil.

But at a certain threshold, when markets threaten to spike food prices or drop the small producers out of viability – the government steps in.

Oh yeah, and then there is that crazy subsidy thing.

bsimon

“Why doesn’t market economics work with food production?”

As GregS notes, subsidies already foul up the market for food prices. This actually goes back to the Nixon administration, which realized that volatile food prices were a political liability. Voila! Price guarantees for producers, low prices for cnsumers & an extremely bloated DOA in the business of keeping breadbasket politicians in office (Collin Peterson, I’m talking about you).

Regarding the original question, the market should work until the entire economy is at risk of collapse. The problem is in identifying when the entire economy is actually in danger.

There is inelastic demand, which basically means that when supplies are tight, prices will go through the roof — people can’t stop eating (though they can sometimes substitute one food for another). Supplies cannot be produced very quickly, since we don’t have a way to grow food overnight.

With the rather unpredictable jumps in production (due to weather, disease, etc.) there is a dangerous combination.

The market, left to itself, will tend to try to produce enough food for the estimated demand — overproducing won’t maximize profit. Then, in the event of a major event which disrupts production (floods, drought, crop disease), there will be too little food available, and prices will go up dramatically.

If we consistently overproduce food to avoid this, then the prices will be very low, and producers will exit the market, leading us back to a balanced supply/demand — until the next crop failure.

To avoid famine in bad times, we need to overproduce during good times. Economics says that the market will adjust to avoid overproduction; thus government has a role in subsidizing food production to ensure that the populace has sufficient food — both from a moral point of view and to help maintain social order.

(Private industry could also play a role here. For instance, some food can be stored in the hopes of selling it when prices rise. However, to guarantee a reasonable return on this, I suspect the prices demanded in the event of a famine would be quite high, and we’re back to a major risk of social unrest.)

Anton Rang

Taking a step back, I’d consider this article together with the news that we now have one billion people in the world who are hungry and undernourished.

Can we really argue that we have too much food production if one out of six people in the world goes hungry? Yes, the major problem is one of distribution and income inequality, but all of humanity should be working together to solve this. Part of that is producing food more efficiently (meat is not efficient, sadly for the pork industry) but we also should look towards producing enough food for everyone.

GregS

Anton,

First, let me compliment you on your well written posts.

You mentioned we over-production in good times to buffer against lean times, which causes us to export the surplus, creating all kinds of problems.

A lot of people have this assumption that because “we” have so much and “they” have so little, “we” should dump our excess on “them”.

The problem is….. we have a very strange mid-latitude diet. Most of our food is highly processed because it is inedible in raw form.

You can’t eat hard field corn, or raw soy.

So if hungry people want our food, they have to change their diet.

But even then….

Shipping our surplus to the third world has unintended consequence of destroying local agriculture. A guy with simple tools simply cannot compete with John Deere.

Today, a farmer in Iowa can produce corn and ship it to Mexico cheaper than the average Mexican farmer can produce it.

So what do we have?

Hungry people hankering for highly processed food they can’t afford to produce themselves, even under ideal conditions.

Anton Rang

Hi Greg,

You’re right that there are unintended negative consequences of exporting our subsidized foods. I honestly don’t have an answer to what’s right here — I would tend to think that solving this problem would require more coordination between governments, but we don’t have a system that can do this. (The WTO is not set up for it and there’s no strong push for a “world food organization” that could try to move surpluses to populations in need while keeping local production going via subsidies — I’m not even sure how possible that would be. Maybe the answer is that areas which are marginal in terms of agricultural production should switch to other parts of the economy, but there are national security interests involved as well as the enormous costs of trying to shift whole countries away from subsistence agriculture.)

I don’t agree, though, that hungry people are ‘hankering for highly processed food’, at least if the implication is that they are uninterested in other foods — in my (limited) experience traveling in countries with a lot of hunger, those people who are most in need of assistance are willing to eat anything (down to grasses, dirt, and other non-nutritious materials in the worst affected areas from reports I’ve seen), and more interestingly, even those who can afford Western processed foods don’t tend to want them. We eat what we are used to; if cheese, crackers, chips, pizza etc. are not part of our traditional diet then we’ll avoid them. (What KFC serves in Asia is amazingly different from here…the multinationals have learned to adapt their admittedly highly processed foods to local tastes!)

I still think that there ought to be a way to link the desirable (in some sense) over-production of agricultural commodities in rich countries which can afford to subsidize farming with the needs of those who don’t have enough food … but I agree that we haven’t yet found a way to do it without negative consequences. We’ve certainly damaged the agricultural economy in some countries by “dumping” our surplus below cost, and aid agencies have complained for years that our food aid policies would better serve those we want to help by sending money for local purchase rather than commodities.

Perhaps the real answer is that every country should strive for only a modest surplus, such that a disaster in one country could be met by delving only slightly into the stocks of several others. That would probably require a second ‘green revolution’ in at least the countries where it’s most difficult to grow food, and it would require a concomitant major decrease in subsidies in much of the Western world.

It’s a very interesting problem — and in the meantime, we continue to subsidize our farmers, use some of the excess to feed some hungry people in our country and elsewhere — and suffer the negative consequences.